The MFAA and FBAA have challenged a proposal recommended by the Financial System Inquiry (FSI) that ASIC should adopt an industry funding model, claiming it will be detrimental to brokers operating small businesses.
In its final report released in December 2014, the FSI claimed that an industry funding model for ASIC could provide more funding certainty and enhance the transparency of ASIC's costs and funding.
Under an industry funding model the costs of ASIC’s regulatory activities would be financed directly by those industries that create the need for regulation, such as mortgage brokers. Funds will be raised through a combination of annual supervisory levies and fees-for-service for specific services required as needed.
In August, the regulator itself backed the proposal which will see it move from the current taxpayer funded model. Currently, only 15% of ASIC’s regulatory costs are recovered through industry levies and fees.
However, in its submission to the government’s consultation paper on an industry funded model, the MFAA said it is “strongly concerned” about the cost and competition burden this will place on brokers and it “strongly opposes” the proposal.
Under the new fees-for-service model, credit intermediaries will be charged a fixed fee of $5,700 to apply for an Australian credit license, replacing the current fee schedule based on a sliding scale determined by the value of loans settled.
According to the MFAA, this is “grossly unfair” to small broker businesses and could see their application fees rise by more than 1,000%.
“A fixed flat fee approach for the application of a credit licence is not only grossly unfair to smaller participants, it does not reflect the complexity of applications. In essence it is a lazy approach to adopt such a calculation with the largest relative burden then being artificially placed on smaller participants,” the MFAA’s submission stated.
“It is unconscionable that large entities settling loans in excess of $2,100 million p.a. to see a reduction of 75% for a credit licence application whilst a small business licence is expected to rise by 1078%.”
The FBAA also published a submission, however due to certain strategic and technical components at the time, the association decided it was not appropriate to make the contents of the submission public knowledge. However, speaking to Australian Broker
, the chief executive of the FBAA, Peter White
, said their submission also argued that the new fixed fee structure was “not appropriate” to the industry.
“[The FBAA] feels there should be multiple tiering structures… The cost to get a licence is far, far, far too high.”
According to White, the expensive fixed fee could place a significant barrier to entry on new brokers.
“On the old scale $5,500 topped it out, but this is $5,700 from beginning to end. That doesn’t make sense. What we don’t want to see is barriers placed on new-to-industry people coming into the market. To me that sort of thing becomes a barrier to entry.”
But White says he also understands why it cannot be placed at the other end of the spectrum either.
“However, from that token, it shouldn’t be 'two-cent exercise' as well because then you have got to turn around and question the calibre of new entrants. I am not being negative by that, it is just a balance. It is nothing against any individual; it is just a commercial balance.”
He did say, however, that the current tiered structure is “not far off the mark”.
Whilst the associations both disagree with the fees-for-service proposal, particularly in respect to credit license applications, they do differ when it comes to the proposed annual levy arrangements.
According to the government's consultation paper, the proposed annual levy arrangements for credit intermediaries – or mortgage brokers – will be grouped into tiers based on credit volume. The cost attached to the tiers will vary from $890 to $260,000.
The MFAA says this also “artificially skews against” small business owners. The association predicts small business will see a rise of 84% in their annual cost if these levies are adopted, which will “destabilise” the credit industry and eliminate competition.
“Excessive increases in licence costs and annual levies is likely to destabilise the credit industry and in particular, credit intermediary businesses.
“Small operators will seek ways to minimise licensing and levy costs. The industry is likely to consolidate considerably and this will in turn reduce competition significantly across the credit sector.”
However, White told Australian Broker
that whilst it would require some tweaking, brokers should not be that worried.
“As far as the annual fee goes, at the bottom end of the scale it is probably not a million miles away from what is payable today. But still, the tiers and stages through it are wrong.”